Jaswant debuts with people's Budget

Updated: Feb 28 2003, 05:30am hrs
Finance Minister Jaswant Singh unveiled a populist Budget on Friday with a slew of measures to make life easier for the poor and the middle classes in the run-up to state and national elections.

But he also promised to maintain fiscal discipline, and unwound many of the high customs duties that protect the economy in a Budget meant to help India compete globally.

Economists had expected a voter-friendly Budget ahead of a string of state elections this year, which are seen as a dress rehearsal for a the general election due by 2004.

"I think you are going to see a lot of happy people on the street because the overall tax burden has come down," T.N. Ninan, Business Standard editor, said in a televised debate.

While promising to cut the fiscal deficit to 5.6 per cent of Gross Domestic Product from 5.9, Singh also peppered his Budget presentation with populist measures targetting ordinary people.

These included tax breaks for parents paying school fees for their children, plans for universal healthcare for the poor and higher tax exemptions for senior citizens.

"This Budget is a class act," said Tarun Das, director general of the Confederation of Indian Industry. "It balances economic and political needs; creates an environment for entrepreneurial growth; and is sensible as it goes forward on tax reforms," he said in a statement.

India's roads, among the worst and most dangerous in the world, were promised fresh public sector funding, though Singh said the private sector would also be roped in to build and operate 48 new toll routes.

Even the international airports in New Delhi and Mumbai are to get a facelift to bring them up to international standards. SOP TO STOCK MARKETS

In a sop to stock markets, Singh scrapped capital gains taxes on shares and dividend taxes.

The 30-issue benchmark Bombay share index jumped by as much as 1.2 per cent after the Budget but erased its gains by mid-afternoon, pulled down by losses by state-run banks.

Singh raised the Foreign Direct Investment cap in private banks to 74 per cent from 49 but did not mention government banks which dominate the industry, disappointing investors.

But information technology shares rose after the Budget restored full tax breaks on profits from software exports.

Singh said Budget savings would come from better management of national and state government debt to take advantage of lower interest rates, and from a 100 basis point cut in interest rates paid on government-administered small savings schemes.

Singh also cut a range of customs duties and promised continued liberalisation of the economy through privatisation and deregulation of state-protected sectors.

He said India would introduce a Value Added Tax from April 1, replacing a complex range of locally applied sales taxes.

"It looks like a growth-oriented budget with several extremely encouraging measures," said P.K. Basu, regional economist at CSFB in Singapore.

"Overall, it is positive and investor-friendly and should give a push to growth," said Ajit Ranade, chief Indian economist at ABN AMRO Bank in Mumbai.

India, Asia's third-largest economy, needs to roll back state controls to attract foreign investment and compete with China.

The Bharatiya Janata Party, which heads the coalition government, is also keen to boost growth ahead of state elections due by November and national elections next year.

Indian growth is estimated at just 4.4 per cent in the financial year ending in March, compared to 8 per cent in China in the last calendar year.

Singh made no forecast for growth in the financial year starting in April, though economists said India would need healthy expansion to keep the deficit in check.

"The biggest drawback of this Budget is that the fiscal deficit has taken a back seat. But the gamble seems to be that if the economy expands, then the fiscal deficit should be under control," Ranade said.